Concerns for Boeing Grow as a Tanker Decision Nears

Thursday

Feb 24, 2011 at 5:09 AM

Supporters of Boeing are questioning the fairness of the bidding, while EADS, its European rival, seems confident it will win the $35 billion contract.

CHRISTOPHER DREW

As the Air Force tries to end its long and often embarrassing effort to buy new aerial fueling tankers, Boeing’s supporters are questioning the fairness of the bidding, while its European rival seems confident it will win the $35 billion contract.

The Pentagon plans to announce the winner on Thursday afternoon. Boeing and the European Aeronautic Defense and Space Company, known as EADS, have been locked for years in a nearly operatic struggle over one of the military’s richest contracts. The battle will shift to Congress once the Pentagon makes its choice.

Both companies have a lot at stake, especially since the contract for the planes, which are essentially flying gas cans, could later be extended to $100 billion even if military spending falls. But the competition also includes thousands of high-paying jobs, and whether they will end up at Boeing’s plants in Washington State and Kansas or in Alabama, where EADS would build a factory if it won.

No matter which company the Pentagon taps, “Congress might just automatically take up arms,” said Richard L. Aboulafia, an aviation analyst at the Teal Group in Fairfax, Va. “The last thing you want in this economic environment is to have your constituents back home think that you aren’t doing all you can to bring jobs to your district.”

Boeing’s supporters acknowledge that they are worried. And if the Air Force picks EADS, that could revive concerns in Congress about putting a major military contract in the hands of a foreign company, though EADS says its North American subsidiary would eventually assemble much of each plane in Mobile.

Lawmakers who support Boeing contend that the Pentagon’s formula for judging the bids favors the larger European plane over Boeing’s smaller one. They also complain that EADS, which is partly owned by European nations, could use subsidies to underbid Boeing even though the EADS plane would normally cost at least 10 to 15 percent more to build.

“I think the Air Force has bent over backwards not only to get EADS to bid, but to give it an advantage,” Senator Maria Cantwell, a Democrat from Washington State, said Wednesday in an interview.

Pentagon officials declined to comment on Wednesday. They have said they steered the bidding “straight down the middle” to get the best deal for the military and to push forward on a project that began in 2001. EADS and its supporters dismiss Boeing’s concerns, saying the rules of the contest have been clear for more than a year and their plane is more modern.

“It is my hope that the Air Force will soon put thousands of Alabamians to work building the clearly superior aircraft our war-fighters deserve,” Senator Richard Shelby, a Republican from Alabama, said in a statement on Wednesday.

Both companies said they had adjusted their bids in submitting their “best and final” offers on Feb. 10. When reporters asked last week how much EADS had lowered its price, Ralph D. Crosby Jr., the chairman of its North American unit, quipped: “Just enough to win.”

EADS also has substantial political backing, particularly among Republican lawmakers. So the fight could also offer another test of how the new Republican majority in the House will handle spending and job issues. And some analysts believe that Congress could still order the Pentagon to split the purchase between the two companies.

The bidding marks the third attempt by the Air Force to start replacing hundreds of aging tankers, which date back to the Eisenhower and Kennedy years. They transfer fuel in flight to fighters, bombers and cargo planes.

Even some military officials note sardonically that the Allies won World War II in half the time it has taken the procurement process to get to this point.

The first effort collapsed after Senator John McCain, the Republican from Arizona, blew the whistle on corruption involving an airplane-leasing proposal with Boeing. Northrop Grumman and EADS, the parent of Airbus, then won in 2008, only to have government auditors block the award after Boeing protested that the evaluation had been too subjective.

Northrop dropped out last year, prompting the Pentagon to extend the bid deadline to give EADS more time out of concern that Boeing could charge a higher price if it were the only bidder.

Another complexity was that the EADS plane, based on an Airbus A330-200 commercial jet, could carry more fuel than Boeing’s offering, which is derived from its 767 jetliner, but also could have higher operating costs.

So the Pentagon has relied on a mathematical scoring system to adjust the price of each plane, determined by how well it would meet various war-fighting situations and how much it would cost to operate the fleet over 40 years.

Boeing’s supporters say that while they initially thought the system might give the smaller plane some advantages, it did not always turn out that way.

Representative Jay Inslee, a Democrat from Washington State, said that under one simulated war situation, some of the EADS planes were allowed to fly from bases closer to the battle areas than Boeing’s planes, reducing the amount of fuel that the EADS planes would have to burn to make deliveries.

He also said the Air Force had projected that fuel costs would increase by an annual average of 2.5 percent over 40 years, while consultants hired by Boeing thought the rate would be higher. He said that reduced a possible cost advantage for Boeing.

Guy Hicks, a spokesman for EADS North America, said his company had been hurt by other factors, and both companies were allowed to seek changes in the rules. “But now it seems that some people are taking steps in the ninth inning to try to change the rules,” he said.

Boeing’s supporters have also long been rankled by the Pentagon’s insistence that it could not weigh the effects of government aviation subsidies while the World Trade Organization considers cases against both Europe and the United States. That issue is likely to flare up again if Congress debates the Pentagon’s tanker choice.

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